Sarepta shares (ticker: SRPT) have soared to $33 from just $8 in the past year, as favorable results last October from Phase 2B clinical trials raised the odds of the drug's approval by the FDA. The stock could go much higher because eteplirsen has the potential to generate $500 million in yearly revenue in the U.S. alone. That revenue could climb steeply if Sarepta develops and distributes a family of DMD drugs around the world. There is no treatment now for Duchenne muscular dystrophy, which usually ends in death by age 25 or 30.

Barron's has written favorably on Sarepta several times in the past year. Companies with lucrative drugs for so-called orphan diseases, such as DMD, typically are valued at a multiple of their annual sales. Sarepta now is valued at about $1 billion. Just last week, two analysts began coverage of the company with favorable ratings. Robyn Karnauskas of Deutsche Bank rated it Buy, with a $45 price target, and wrote that the stock could be worth $192 if Sarepta dominates the worldwide market for DMD treatment. Tim Lugo of William Blair rated the stock Outperform with a $52 target.

LAST FALL'S TRIAL RESULTS that so excited Wall Street–and briefly spiked the stock price to $45–showed that eteplirsen produced a significant level of a critical protein, dystrophin, that is missing in the muscle cells of DMD sufferers. Without dystrophin, muscles deteriorate throughout the body. The trial also showed impressive performance by boys treated with eteplirsen on a six-minute walk test. The trial's lead investigator, Dr. Jerry Mendell, director of gene therapy at Nationwide Children's Hospital, called the data "a defining moment of progress and hope" for patients with DMD. Subsequent data from the trial have shown similar benefits.

DMD, the most severe form of muscular dystrophy, is a recessive genetic disorder that affects only boys. About 35,000 in the U.S. and European Union have DMD. Around 13% of them (meaning roughly 1,500 in the U.S.) have a mutation on the dystrophin gene at a point called exon 51 that eteplirsen treats. Sarepta also is developing drugs for other DMD-causing mutations on the dystrophin gene. Drugs for rare diseases can cost $300,000 or more annually.

The FDA normally requires three phases of clinical trials before approving a drug. Prodded by Congress, however, the agency has approved some drugs with just two phases of testing, if they showed promise and addressed a significant unmet medical need.

Sarepta declined comment last week, but earlier this month its CEO, Chris Garabedian, said of eteplirsen, "We believe the safety profile combined with robust and statistically significant biochemical and clinical benefits warrant consideration of accelerated approval."

Recent Price

$33.56

52-Week Change

288%

Shares Outstanding (mil)

31.7

Stock-Market Value

$1.1 billion

Cash

$187 million

2013E Revenues (mil)

$21

2013E Operating Loss (mil)

$100

Key Drug (for Duchenne muscular dystrophy)

eteplirsen

E=Estimate Source:Thomson Reuters

Sarepta is to meet with the FDA this month to go over the clinical data. By late April, the agency is expected to provide guidance to Sarepta on whether it's amenable to accelerated approval or whether it will require a full Phase 3 trial. Sarepta then will announce its decision on seeking accelerated approval. Accelerated consideration could mean FDA approval in 2014, while a full Phase 3 trial would push out potential approval until 2015.

MOST ANALYSTS PUT A below-50% chance of accelerated approval because only 12 boys were in the Phase 2B trial. However, analysts do expect ultimate approval. Further testing, which will occur whether eteplirsen wins early approval or not, should include about 50 boys.

Sarepta faces competition from Drisapersen, a drug developed by Netherlands-based Prosensa and U.K. giant
GlaxoSmithKline
(GSK). But boys enrolled in their clinical trials have encountered adverse side effects, notably kidney problems. Analysts give the edge to Sarepta.

Sarepta could fall into the $20s if it doesn't seek accelerated approval. A failure to do so would delay the drug's potential approval and might signal that the FDA has concerns. If the company seeks accelerated approval, the stock could hit $50 or more because it might indicate favorable FDA feedback. If eteplirsen fails and doesn't get FDA approval, Sarepta shares would likely collapse.

The Bottom Line

If Sarepta seeks accelerated approval for eteplirsen, its shares, now in the $30s, could quickly hit $50. If it doesn't, they could slide into the $20s.

The FDA is under pressure to approve eteplirsen from parents of DMD sufferers, led by a dynamic Vermont mother, Jenn McNary. One of her sons, Max, responded very favorably in the eteplirsen trial. He's out of a wheelchair. In a recent tweet, she wrote: "Told today by Max's teacher that he 'was running all through the woods' during a field trip and 'nobody could catch him.' " Her older son, Austin, wasn't eligible to participate in the eteplirsen trial and remains in a wheelchair, in deteriorating health. She is trying to get the drug to Austin. Her emotional petition to the FDA, which has garnered more than 175,000 signatures, begins: "FDA: Please approve the medicine my boys need to survive–both of my sons deserve to live."

She and two other mothers have met twice with top FDA officials this year. In a recent speech, FDA Commissioner Margaret Hamburg said she had had a "powerful meeting" with DMD families "about what needs to be done to get innovative and life-saving medicines to them faster."

There's a good chance that, sooner or later, eteplirsen gets FDA approval. That would be good news for DMD sufferers, and Sarepta shareholders.